Hi. My wife and I have a 10 month old son, and we live in PA. Our son has now got enough money as gifts so that we want to set up a 529 plan for him, rather than keep the money in a savings account. We are not currently planning to aggressively contribute to a 529 plan for him, but we do think that it is a good place to put monetary gifts that he receives.

Reading about all the options is a bit confusing.

Vanguard has a "Nevada" 529 plan. I called their Voyager line and their advisor told me that there could be tax implications to opening an out of state 529 plan in PA. The advisor pointed me to the Vanguard web page for lots of info, but their web site is not loading at all for me right now when I try to get to all their different options... it is a connection problem on their end (not mine).

I also need to figure out how to investigate the PA 529 Plan. And I guess there are 529 Plans in many other states... I did a search of topics and didn't find any that address my specific questions. Any advice on where to start reading about all the different 529 options? What is the best 529 plans? What is the difference between an out of state 529 and an in-state 529? Is it worth it to stick with Vanguards Nevada 529? Thanks!

All of the plans have websites on which you can learn about the investment options and the expense ratios.

Edited: Pennsylvania appears to be unique in offering state income tax deductions for contributions to out-of-state 529s, and exempting qualified withdrawals from out-of-state plans from income taxes. So the only tax benefits are inheritance tax treatment. Since the fees for PA plans are higher than they are for the same funds in other states, it seems hard to justify the choice of the PA529.

If you're looking to put the money in index funds, NY529 is a good choice. They have among the lowest management fees of any plan, and a lot of choices.

If you're considering an actively-managed account, Wisconsin's plan lets you invest with DFA (a very Boglehead choice as far as active management goes), with an ER around .4% (which is very good, obviously).

Skip the PA plan and use the lowest cost options available you are comfortable with. Right now, that is likely Vanguard (Nevada) or NY. NY is likely your best bet because it has lower fees and has a much lower minimum.

You are extremely lucky to live in PA concerning 529s. It's one of only 4 states that allows you to contribute to an out-of-state 529 and still claim the deduction on your state income taxes (up to 13K per household). So while most people benefit from using in-state up to the contribution maximum benefit (because in most states, you only get that deduction by contributing to the in-state plan-- which can have high expense), you have free rein to find the cheapest. That would likely by the NY plan.

ProfessorX wrote: What is the difference between an out of state 529 and an in-state 529?

That depends on the tax laws in the state you live in. Sometimes the state will give you a deduction for that state's plan. Sometimes not. Your first task is to learn your state's specific rules. Then compare. Check out Utah - like Nevada, Utah is reported to have a good plan.

donaldfair71 wrote:Skip the PA plan and use the lowest cost options available you are comfortable with. Right now, that is likely Vanguard (Nevada) or NY. NY is likely your best bet because it has lower fees and has a much lower minimum.

You are extremely lucky to live in PA concerning 529s. It's one of only 4 states that allows you to contribute to an out-of-state 529 and still claim the deduction on your state income taxes (up to 13K per household). So while most people benefit from using in-state up to the contribution maximum benefit (because in most states, you only get that deduction by contributing to the in-state plan-- which can have high expense), you have free rein to find the cheapest. That would likely by the NY plan.

EDIT: Portland beat me to it! Great minds think alike.

No deduction for me, so looking for best direct plan. Nevada plan seems to have more fees than other vanguard funds. I'm planning on going with Ohio for now, unless some convinces me otherwise. I think the trade off is fewer vanguard choices for other in-plan choices, but they generally have higher fees than the vanguard funds in the program. Other good options are NY, IL, and Utah. Some add annual fees that are generally minor, but I'm always annoyed by them as well as fee creep.

Yes, another question. Once you sign up for a plan, it is hard to leave it for a different plan, right? So even if fees in the NY plan are very low right now, that could change dramatically during the 20-30 year investment period.How can you protect yourself against "fee creep" in the future?

ProfessorX wrote:Yes, another question. Once you sign up for a plan, it is hard to leave it for a different plan, right? So even if fees in the NY plan are very low right now, that could change dramatically during the 20-30 year investment period.How can you protect yourself against "fee creep" in the future?

You have two options if fees change (or state tax laws change) in the future:

1. You can roll over 529s from one state to the next once every 12 months.

2. If you don't want to wait, you can open a 529 in a different state with a different beneficiary. The rollover would be an (almost) immediate rollover between beneficiaries, not states (even though the plans are in different states). Then change the beneficiary back to the original in time (before using funds).

Also I tried "Ohio" as an example in my previous link, and if you live there, you only get a maximum of $80 per year off your total taxes, even with a high salary. When "benefits" as low as this in some states, it might not even be worth trying to get the state tax refund, correct?

assumer wrote:Also I tried "Ohio" as an example in my previous link, and if you live there, you only get a maximum of $80 per year off your total taxes, even with a high salary. When "benefits" as low as this in some states, it might not even be worth trying to get the state tax refund, correct?

That could absolutely be true. At present, the tax savings is moot because Ohio's fees are so incredibly low.

Also, keep in mind that the money carries over. So a few years of contributing to a 529 in Ohio could leave a person a lifetime of deductions at the state level. This isn't true in, say, Pa.

PortlandHead wrote:Edited: Pennsylvania appears to be unique in offering state income tax deductions for contributions to out-of-state 529s, and exempting qualified withdrawals from out-of-state plans from income taxes. So the only tax benefits are inheritance tax treatment. Since the fees for PA plans are higher than they are for the same funds in other states, it seems hard to justify the choice of the PA529.

Not unique as I know Kansas and Missouri allow this as well (and likely a few others). Some states also have generous clawback provisions if you transfer to an out-of-state plan. Oklahoma, for example forces you into an Oklahoma plan in order to get the state tax deduction, but you can transfer the money to another plan after 1 year without having to give the deduction back.

I am in the process of learning about 529 plans so that I can help my two daughters set up plans for their children. After reviewing a number of the state plans I admit to being shocked at the fees that are charged, in some cases both up front fees and ongoing fees. Our plan is to gift the money to our daughters who will then set up the plans. Both grandchildren are under the age of 1.

It looks to me like New York has the best fee structure. Does anyone have any concerns with the NY 529 plan or any of its options?I would agree that Utah and Ohio also look good in terms of fees.

One daughter lives in Wisconsin where there is a tax deduction (max $3000/year) for contributions. To any Wisconsin residents, are the tax deductions worth the higher fees in the Wisconsin plan? It would appear to me that they are not.

The NY 529 plan is 0.17% regardless of investment choice, with no other fees. I don't think anyone should worry about those fees. As for the options - there isn't a small-value or international small cap if that matters to you, but this is consistent with most plans. One thing I don't like is that the automatic age-based plans make their allocation adjustments in a heavy-handed manner, changing allocations by 25% at a time. Too fat-fingered for my preference, but you can easily avoid this by choosing your own allocation (and then manually changing it later on). If you want a true set-it-and-forget-it this is a consideration.

The Wisconsin plan, since its recent changes, is excellent. It's not Vanguard, but that doesn't mean it's not excellent. Make sure you are looking at the direct-sold (Edvest) plan, not the advisor-sold plan. The passive options in Edvest are no more costly than the Vanguard plans (slight increase over NY). I would strongly recommend using that plan for your Wisconsin-domiciled daughter, and not forgoing the tax benefit.

Thanks Kenyon - the updated plan information from Wisconsin certainly makes it worth considering. The fees are much lower than the information I found on line. I don't see any mention of different share classes and loads which makes the fees easier to compare across plans.

Sorry to revive an older thread, but I am looking into 529 plans as a PA resident and found this information very helpful. It appears, though, that many folks are opting for lower costs than the very valuable benefit of not having their assets counted to determine financial aid for PA schools. Is there something that I am missing here with regards to this perceived benefit?

The treasurer is trying to get the state's full faith to back it, which would make it rock solid in my opinion. As of now, it isn't 'guaranteed' and the name is terribly misleading to the average pennsylvanian. Having said that, it was 70% funded in the 2008-09 crisis, and is now totally funded ... until the next downturn perhaps. One poster did raise a good point that - if the residue hit the rotors - PA would likely bail it out - as many many voters are involved in the GSP - with many more now that the market has been on a roll.

Ultimately, I decided that I would invest some in the GSP - not all of it - and limit it to my older child. My reasoning is that for a 14 year old, I am going to be conservative with the shorter time frame. With 4 years left, I am going to get 4% tuition inflation growth - which I can't realistically get at this stage with a time frame of less than 5 years to matriculation. If I am not done funding for my 11 year old soon, I will invest his latter contributions in the GSP. The remainder stays in my VG nevada plans.